Introduction

Section 14A of the Income Tax Act, 1961 (‘the Act’) provides that no deduction shall be allowed of any expenditure incurred in relation to income not includible in total income i.e. expenditure related to exempt income is not tax deductible. Rule 8D of the Income Tax Rules, 1962 (‘the Rules’) provides computation mechanism for said disallowance. Over the years taxpayers faced extensive litigation on amount to be disallowed under section (‘u/s’) 14A read with Rule 8D. This article discusses various aspects related to applicability of section 14A read with rule 8D.

1. Section 14A – Expenditure incurred in relation to income not includible in total income

“(1) For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act.

(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.

(3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act:”

2. Purpose is to maintain equity

Section 14A provides that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. This ensures the equity as if an income is not taxable then any expenditure incurred to earn said income should not be deductible against taxable income. This ensures no unjust enrichment on the part of taxpayer.

3. Section 14A applies only if AO is not satisfied with the correctness of the claim of the assessee

Sub-section (2) of section 14A provides that AO shall determine the amount of expenditure incurred in relation to exempt income as per prescribed method if the AO, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee.

Thus, before invoking section 14A, AO must record the fact that having regard to the accounts of the assessee AO is not satisfied with the correctness of the claim of the assessee regarding expenditure to be disallowed u/s 14A. While recording said fact the AO must provide reasonable and cogent reasons.

Unless said fact is specifically recorded, AO cannot proceed to determine the amount of expenditure to be disallowed u/s 14A read with Rule 8D. If the AO proceeds to determine disallowance as per Rule 8D without recording the aforesaid fact then such a determination will be invalid in law.

Moreover, the AO need not only record aforesaid fact that he is not satisfied with the claim of the assessee, he should also communicate said fact to the assessee as well. Such a communication will provide the assessee an opportunity to make a suitable representation, before the AO proceeds to determine any disallowance u/s 14A read with Rule 8D.

In support of above reliance can be placed on the following judicial precedents:

  • Madras High Court – Marg Ltd. vs. Commissioner of Income Tax – [2020] 120 taxmann.com 84 (Madras)

“21. ……………… The legal position, as interpreted above by various judgments and again reiterated by us in this judgment, remains that the disallowance of expenditure incurred to earn exempted income cannot exceed exempted income itself and neither the Assessee nor the Revenue are entitled to take a deviated view of the matter. Because as already noted by us, the negative figure of disallowance cannot amount to hypothetical taxable income in the hands of the Assessee. The disallowance of expenditure incurred to earn exempted income has to be a smaller part of such income and should have a reasonable proportion to the exempted income earned by the Assessee in that year, which can be computed as per Rule 8D only after recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure under section 14A made by the Assessee or his claim that no expenditure was incurred is validly rejected by the Assessing Authority by recording reasonable and cogent reasons conveyed to Assessee and after giving opportunity of hearing to the Assessee in this regard.”

  • Commissioner of Income Tax vs. Celebrity Fashion Ltd. – [2020] 119 taxmann.com 426 (Madras)

“18. Therefore, to apply the provisions of Section 14A of the Act, the Assessing Officer should have recorded a finding as to how Sub-Section (1) of Section 14A of the Act would stand attracted. In the absence of any such finding, the disallowance made was not justifiable. In fact, the Assessing Officer straightaway proceeded to the second limb of Section 14(2) of the Act, which is impermissible. The Tribunal rightly took note of the decision in the case of Redington India Ltd., wherein it was held that the provisions of Section 14A of the Act read with Rule 8D of the Income-tax Rules, 1962 cannot be made applicable in vacuum i.e. in the absence of exempt income. Therefore, we find that the Tribunal was right in deciding the issue against the Revenue and in favour of the assessee.”

  • DCIT vs. DML Exim (P.) Ltd. – [2020] 118 taxmann.com 491 (Rajkot – Trib.)

If AO had not recorded his satisfaction as to the correctness of claim of the assessee in respect of expenditure in relation to exempt income, invocation of rule 8D for disallowing expenses u/s 14A is unsustainable

High Court upheld Tribunal’s order holding that AO could not straightaway reject the expenditure offered for disallowance u/s 14A and apply rule 8D without assigning any reasons, SLP filed against said decision dismissed by SC

Department’s attempt to put the cart before the horse

“7. ……. assessee has given a reasonable explanation about the quantification of his suo motu disallowance, and the Assessing Officer has not pointed out any specific defects in the same. What was pointed out by the assessee that ‘at best’ entire expenses of project and investment department could be treated as ‘expenditure incurred by the assessee in relation to income which does not form part of the total income’. It is so for the reason that the project and investment department is only department which deals with identifying the opportunities and growth in diverse business opportunities, and thus identifying investment opportunities is one of its functions, and that no other department of this company deals with the matters relating to investments in shares. The Assessing Officer has rejected this explanation on the ground that “as, in my opinion, the expenditure incurred for project and investment department constitutes direct expenditure incurred in relation to investments held in shares, hence it is to be disallowed under rule 8D(2)(i) being in addition to disallowance made under rule 8D(2)(iii)”. That’s where he fell in error. An Assessing Officer cannot reject the suo motu disallowance offered by the assessee on the ground that such a disallowance under rule 8D will be more; that’s putting cart before the horse. Quite to the contrary, an Assessing Officer can resort to rule 8D only when, as per the prescription of Section 14A(2) “the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act”. That satisfaction, as required, under section 14A(2), for invoking rule 8D, cannot be on the basis of mechanism of rule 8D itself; it has to be independent of rule 8D. ………………….That exercise is clearly not carried out. The Assessing Officer has noted the explanation of the assessee and proceeded to disregarded the same on the basis of working of rule 8D(2)(i) and 8D(2)(iii). There is no other, and in fact no, reason for rejection of the computation of disallowance by the assessee. As a matter of fact, on the fact of this case, there is not even a whisper of the reason, barring reference to rule 8D(2)(i), for rejecting the suo motu disallowance offered by the assessee. On these facts, and for the detailed reasons set out above, the Assessing Officer was in error in invoking rule 8D(2). We, therefore, deem it fit and proper to direct the Assessing Officer to delete the impugned additional disallowance under section 14A read with rule 8D, and to thereby accept the suo motu disallowance of Rs 6,18,69,000 offered by the assessee. Once we hold so, all other issues raised in these appeals become wholly academic and infructuous, and there is no need to adjudicate on the same.

In view of above, it is clear that first the AO has to record the reason as to why he is not satisfied with the explanation of the Assessee and then only he can take route of Rule 8D and not vice-versa i.e. the AO cannot say that merely because disallowance if computed as per rule 8D would be more than the disallowance offered by the assessee, therefore he is rejecting the claim of the assessee.

4. Assessee must substantiate its claim before the AO

If assessee claims that no expenditure was incurred to earn the exempt income and therefore no section 14A disallowance is called for, he should substantiate this fact before the AO. In absence of said substantiation if there is substantial increase in investments of the assessee, AO can make disallowance u/s 14A read with rule 8D. In this regard, reference can be made to the ruling of Madras High Court in the case of Polaris Consulting and Services Ltd. vs. PCIT – [2020] 119 taxmann.com 387 (Madras), wherein it was held as under:

“5. ………… The assessee’s contention was that no expenditure was incurred by them for earning the exempt income. The assessee were not able to substantiate that fact before the authorities or before the Tribunal. Both CIT(A) and the Tribunal reappreciating the factual matrix and found that the investment during the year increased from Opening Balance of Rs. 3,21,68,40,000/- to Closing Balance of Rs. 5,17,93,70,000/-. Further the Assessing Officer also found that the value of the assets also increased substantially to Rs. 1,84,18,32,000/- from Rs. 1,76,96,30,000/- and therefore applied Rule 8D and made additions under section 14A of the Act and we find no error in the order of the Assessing Officer as confirmed by the CIT(A) and the Tribunal. Accordingly the Substantial Question of Law No. 1 is answered against the assessee. “

5. Section 14A can also apply when assessee claims that no expenditure has been incurred to earn the exempt income

When no expenditure was incurred by the assessee in earning dividend income, no disallowance could be made u/s 14A provided the assessee can substantiate his claim.

However, section 14A can also apply when assessee claims that no expenditure has been incurred to earn exempt income, provided AO records the fact that he is not satisfied with the correctness of said claim of the assessee and the assessee is unable to substantiate the fact that no expenditure has been incurred to earn exempt income.

6. Rule 8D – Computation mechanism [w.e.f. 2 June 2016]

“Method for determining amount of expenditure in relation to income not includible in total income

Rule 8D

(1) Where the Assessing Officer, having regard to the accounts of the assessee of a previous year, is not satisfied with—

(a) the correctness of the claim of expenditure made by the assessee; or

(b) the claim made by the assessee that no expenditure has been incurred, in relation to income which does not form part of the total income under the Act for such previous year, he shall determine the amount of expenditure in relation to such income in accordance with the provisions of sub-rule (2).

(2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:—

(i) the amount of expenditure directly relating to income which does not form part of total income; and

(ii) an amount equal to one per cent of the annual average of the monthly average of the opening and closing balances of the value of investment, income from which does not or shall not form part of total income :

Provided that the amount referred to in clause (i) and clause (ii) shall not exceed the total expenditure claimed by the assessee.”

As per Rule 8D disallowance u/s 14A will be of

(i) Expenditure directly related to exempt income; and

(ii) 1% of the annual average of the monthly average of the opening & closing balances of investment, income from which does not or shall not form part of total income.

Total disallowance u/s 14A read with Rule 8D shall not exceed the total expenditure claimed by the assessee.

7. Where no exempt income is earned by the assessee during the year, no disallowance to be made u/s 14A

Amended rule 8D is applicable w.e.f. 2 June 2016 which inter-alia provides for disallowance of 1% of the annual average of the monthly average of the opening & closing balances of investment, income from which does not or shall not form part of total income. Generally revenue authorities interpret this to mean that Rule 8D is applicable even where taxpayer in a particular year has not earned any exempt income. Even before amendment, erstwhile Rule 8D contained similar wordings.

Further, CBDT vide circular dated 11 February 2014 clarified that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income.

However, judiciary in many cases held that Section 14A read with Rule 8D cannot be made applicable in absence of exempt income [refer Celebrity Fashion Ltd. (supra)].

  • Tata Sky Ltd. vs. ACIT – [2020] 119 taxmann.com 424 (Mumbai – Trib.)

“23. We have heard both the parties, perused the material available on record and gone through the orders of the authorities below. We find that this issue is squarely covered in favour of the assessee by the decision of Hon’ble Bombay High Court in the case of Ballarpur Industries Ltd. in ITA No. 51 of 2016, wherein it was held that when there is no exempt income then no disallowance of expenses u/s 14A of the IT Act, 1961 can be made. The Hon’ble Delhi High Court in the case of Cheminvest Ltd. (378 ITR 33supra) has held that if there is no exempt income then no disallowance of expenditure u/s 14A of the Act can be made. The ITAT Delhi Special Bench in the case of ACIT v. Vireet Investments (P.) Ltd. [2017] 58 ITR(T) 313 (Delhi – Trib.) (SB) has reiterated similar principles of law. Therefore, we are of the considered view that once, there is no exempt income earned for the year, then disallowance contemplated u/s 14A of the Act cannot be pressed into. In this case, the Revenue has not disputed the fact that the assessee has not earned exempt income for the year under consideration. Since, there is no exempt income for the year, the disallowance of expenditure contemplated u/s 14A of the Act cannot be made.”

  • DCIT vs. Cornerstone Property Investment (P.) Ltd. – [2020] 118 taxmann.com 541 (Bangalore – Trib.)

Where from P&L account of assessee it was clear that assessee had not earned any exempt income during year, no disallowance attracts u/s 14A

  • DCIT vs. JSW Ltd. – [2020] 116 taxmann.com 565 (Mumbai – Trib.)

Where assessee had not earned any tax exempt income in relevant previous year, no disallowance u/s 14A could have been made

  • New Delhi Television Ltd. vs. ACIT – [2020] 117 taxmann.com 212 (Delhi – Trib.)

Where no exempt income was received or receivable during relevant previous year, disallowance u/s 14A could not be made.

  • PCIT vs. GVK Project and Technical Services Ltd. – [2019] 106 taxmann.com 181 (SC)

High Court upheld Tribunal’s order holding that in absence of any exempt income reported by assessee, disallowance could not be made u/s 14A, SLP filed against said order dismissed by SC

8. Disallowance u/s 14A cannot exceed the exempt income

The disallowance to be made u/s 14A read with Rule 8D cannot exceed the exempt income. Thus, if the assessee has earned exempt income of Rs.10 lakhs and disallowance as per Rule 8D is Rs.12 lakhs then such disallowance should be restricted to Rs.10 lakhs only.

SLP dismissed against High Court ruling that disallowance u/s 14A cannot exceed exempt income of relevant year

– PCIT vs. Caraf Builders & Constructions (P.) Ltd. – [2019] 112 taxmann.com 322 (SC)

– PCIT vs. State Bank of Patiala – [2018] 99 taxmann.com 286 (SC).

9. Nexus needs to be established between the expenditure sought to be disallowed and earning of dividend income

Where assessee earned exempt dividend income by making investment in shares out of surplus funds, impugned ad-hoc disallowance cannot be made by the AO u/s 14A without establishing any nexus between the expenditure incurred which AO contemplate to disallow and earning of exempt dividend income. In this regard, reference can be made to the ruling of Delhi ITAT in the case of

  • Triveni Engineering & Industries Ltd. vs. Addl. CIT – [2020] 118 taxmann.com 301 (Delhi – Trib.)

“8. …………….. The investment in the shares which yielded above exempt dividend income, had been made out of surplus funds available in earlier years. Since no expenditure was incurred by the assessee in relation to exempt dividend income, no disallowance under section 14A of the Act was suo moto offered by the assessee. In the assessment order, the Assessing Officer made ad-hoc disallowance of expenses of Rs. 3,00,000 on the ground that some manpower/man hours alongwith the expenses on other clerical staff/managerial staff and expenses for portfolio management must have been incurred towards earning of aforesaid exempt dividend income. …………………. The phrase “expenditure incurred” used in the aforesaid section refers to actual expenditure, which has proximate nexus with exempt income, and not some imaginary or notional expenses, for the purposes of disallowance under that section. The provisions of Section 14A are applicable if and only if the assessing officer, at the first place, finds that the assessee has actually incurred expenses, which have proximate nexus with earning of exempt dividend income and not otherwise. In other words, the onus is on the Assessing Officer to find proximate nexus of expenses with earning of exempt income, before computing any disallowance under section 14A of the Act. The Ld. AR submitted that in the absence of such nexus being established, it is not open to the Assessing Officer to disallow any part of the expenditure on proportionate basis. Thus, the prerequisite condition for applying the provisions of Section 14A of the Act is that some expenditure must be incurred “in relation to” the earning of exempt income. The said expression “in relation to” has been judiciously explained in various decisions to mean some real, dominant and immediate relationship. In this regard, the Ld. AR pointed out the decision of Hon’ble Supreme Court in the case of CIT v. Walfort Share & Stock Brokers: 233 CTR 42, wherein it has been held that there must be a proximate relationship of expenditure with exempt income, for the purposes of making disallowance of same under section 14A of the Act. In the case of Godrej & Boyce Mfg. Co. Ltd. v. DCIT 328 ITR 81, the Hon’ble Bombay High Court, while deciding the issue of disallowance under section 14A of the Act, following the aforesaid the Hon’ble Supreme Court decision in Walfort Shares & Stock Brokers (supra), observed that disallowance under section 14A can be effected only when a proximate cause for disallowance is established, stating the relationship of the expenditure with income which does not form part of the total income.

10. Where both interest-free and interest bearing funds were available with the assessee, it is to be presumed that investments were made out of interest-free funds

PCIT vs. Shapoorji Pallonji & Co. Ltd. – [2020] 117 taxmann.com 625 (Bombay)

Where both interest-free and interest bearing funds were available with assessee, it is to be presumed that investments were made out of interest-free fund

11. Intention/ motive behind making the investment is not relevant for section 14A disallowance

Maxopp Investment Ltd. vs. CIT – [2018] 91 taxmann.com 154 (SC)

“34. Having clarified the aforesaid position, the first and foremost issue that falls for consideration is as to whether the dominant purpose test, which is pressed into service by the assessees would apply while interpreting Section 14A of the Act or we have to go by the theory of apportionment. We are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word ‘in relation to the income’ that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act.

38. …………………….. we do not agree with the test of dominant intention applied by the Punjab and Haryana High Court, which we have already discarded. In that event, the question is as to on what basis those cases are to be decided where the shares of other companies are purchased by the assessees as ‘stock-in-trade’ and not as ‘investment’. We proceed to discuss this aspect hereinafter.

39. In those cases, where shares are held as stock-in-trade, the main purpose is to trade in those shares and earn profits therefrom. However, we are not concerned with those profits which would naturally be treated as ‘income’ under the head ‘profits and gains from business and profession’. What happens is that, in the process, when the shares are held as ‘stock-in-trade’, certain dividend is also earned, though incidentally, which is also an income. However, by virtue of Section 10 (34) of the Act, this dividend income is not to be included in the total income and is exempt from tax. This triggers the applicability of Section 14A of the Act which is based on the theory of apportionment of expenditure between taxable and non-taxable income as held in Walfort Share & Stock Brokers (P.) Ltd. case. Therefore, to that extent, depending upon the facts of each case, the expenditure incurred in acquiring those shares will have to be apportioned.

40. We note from the facts in the State Bank of Patiala cases that the AO, while passing the assessment order, had already restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D of the Rules and holding that section 14A of the Act would be applicable. In spite of this exercise of apportionment of expenditure carried out by the AO, CIT(A) disallowed the entire deduction of expenditure. That view of the CIT(A) was clearly untenable and rightly set aside by the ITAT. Therefore, on facts, the Punjab and Haryana High Court has arrived at a correct conclusion by affirming the view of the ITAT, though we are not subscribing to the theory of dominant intention applied by the High Court. …………”

Though, after Maxopp Investment 402 ITR 640 (SC), even “strategic investments” have to be considered for disallowance, the assessee is entitled to contend that the investments are “legacy” or “one-time” and that there is in fact no expenditure incurred to earn the tax-free income.

12. Disallowance under clause (f) of Explanation 1 to section 115JB(2)

Clause (f) of Explanation 1 to section 115JB(2) of the Act provides that while computing the book profit amount of expenditure relatable to any income exempt u/s 10/11/12 shall be added back. In this regard, it is noteworthy that how said amount to be added back is to be computed. Whether amount computed u/s 14A read with Rule 8D can be added back as it is. On this issue Delhi Tribunal Special Bench held that no increase or decrease can be effected in the book profit calculated u/s 115JB on account of disallowance made u/s 14A.

The amount to be added back u/s 115JB should be only such amount as debited to P&L A/c and is directly related to earning of aforesaid exempt income.

In this regard, reliance can be placed on the following judicial pronouncements:

  • K. B. Mehta Construction (P.) Ltd. vs. DCIT – [2020] 119 taxmann.com 456 (Ahmedabad – Trib.)

Disallowances made u/s 14A read with rule 8D could not be applied to provisions of section 115JB

  • Zaveri & Co. (P.) Ltd. vs. DCIT – [2020] 118 taxmann.com 429 (Ahmedabad – ITAT)

“16. Now coming to the issue of inclusion of disallowance made under section 14A in the book profit determined under section 115JB of the Income-tax Act, 1961, the ld. counsel for the assessee at the very outset submitted that this issue is covered in favour of the assessee by the decision of Special Bench in the case of Asstt. CIT v. Vireet Investments (P.) Ltd. [2017] 82 taxmann.com 415/165 ITD 27 (Delhi – Trib) (SB), wherein it is held that no increase or decrease can be effected in the book profit calculated under section 115JB on account of certain disallowance made under section 14A.

17. Considering the above facts, we are of the view that Special Bench of the ITAT in the case of Vireet Investment (P.) Ltd. (supra) has formulated following question for adjudication on this issue:

“Whether the expenditure incurred to earn exempt income computed u/s.14A could not be added while computing book profit u/s.115JB of the Act.”

18. Special Bench answered this question in favour of the assessee and held that computation for the purpose of clause (f) of Explanation 1 to section 115JB(2) is to be made without resorting to the computation as contemplated under section 14A r.w. rule 8D. Respectfully following the above decision of the Special Bench, we reject this ground of appeal in both the years and direct the AO not to make adjustments in book profit for the purpose of MAT liability on the basis of calculations made with Rule 8D of the Income-tax Rules.”

13. Revision u/s 263

If at the time of recording the finding AO has taken one of the plausible views then Commissioner could not set aside the order of assessment u/s 263, merely on the ground of inadequate enquiry.

Commissioner of Income Tax vs. Chemsworth (P.) Ltd. – [2020] 119 taxmann.com 358 (Karnataka)

“8. In the backdrop of aforesaid well settled legal principles, we may examine the facts of the case in hand. In ‘CIT v. Sunbeam Auto Ltd.’ 332 ITR 167, it has been held by Delhi High Court that Assessing Officer in the order of assessment is not required to give detailed reasoning in respect of each and every item of deduction and therefore, the question whether there has been an application of mind before allowing expenditure has to be examined from the record of the case. The question of lack of enquiry/inadequate enquiry is also required to be kept in mind and mere inadequacy of the enquiry would not confer jurisdiction on the Commissioner of Income-tax under section 263 of the Act. In the instant case, the Commissioner of Income-tax has held that the enquiry conducted by the Assessing Officer is inadequate and has assumed the revisional jurisdiction. The assessee has filed all the details before the Assessing Officer and Assessing Officer has accepted the contention of the assessee that no expenditure is attributable to the exempt income during the relevant Assessment Year. Thus, while recording the aforesaid finding, the Assessing Officer has taken one of the plausible views in allowing the claim of the assessee and therefore, the Commissioner of Income-tax could not have set aside the order of assessment merely on the ground of inadequacy of enquiry, the order passed by the Commissioner of Income-tax is not sustainable in law and the same has rightly been set aside by the Tribunal.”

Concluding remarks

In view of the provisions of section 14A read with Rule 8D and various judicial pronouncements, following key ratios should be kept in mind while analysing the application of section 14A read with Rule 8D:

i. Section 14A applies only if AO is not satisfied with the correctness of the claim of the assessee. Before AO can proceed to apply section 14A r.w. Rule 8D, AO has to record that he is not satisfied with the claim of the assessee, with respect to the disallowance made by the assessee u/s 14A or, that no expenditure was incurred and such rejection of claim of assessee should be coupled with reasonable and cogent reasons and opportunity of hearing should also be provided to the Assessee;

ii. Assessee must substantiate its claim before AO;

iii. Section 14A not applicable when no expenditure has been incurred to earn exempt income;

iv. Disallowance under Rule 8D shall not exceed the total expenditure claimed by the assessee;

v. Where no exempt income is earned by assessee during the year, no disallowance to be made u/s 14A;

vi. Disallowance u/s 14A cannot exceed exempt income;

vii. Nexus needs to be established between the expenditure sought to be disallowed and earning of dividend income;

viii. Intention/ motive behind making the investment is not relevant for section 14A disallowance;

ix. Where both interest-free and interest bearing funds were available with the assessee, it is to be presumed that investments were made out of interest-free funds;

x. No increase or decrease can be effected in the book profit calculated u/s 115JB on account of disallowance made u/s 14A.

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